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After years of impressive growth, there is a real sense that the fortunes of the independent sector have begun to plateau. That’s the key message coming from producer feedback to Televisual’s Production 100 in 2015.

Against a background of an improving economy, the business climate for many independent production companies has been generally good in the past year.

UK producers have continued to make stand out programmes – from Wolf Hall through to Catastrophe and Terror at the Mall – for their UK broadcaster clients.

They are also continuing to pursue opportunities with US and international broadcasters. And deep pocketed digital players are commissioning major shows from UK outfits, like Left Bank’s £100m The Crown for Netflix and the ex-Top Gear team’s reported £160m deal with Amazon.

Behind the scenes, though, most producers have been grappling with a series of challenges. Some are day-to-day business issues that have been present for several years: tightening production budgets, rising costs as well as commissioning delays. But others are symptoms of a profound changes wrought by digital technology.

COMPETITION ISSUES
In both the key UK and US markets, established broadcasters have come under huge pressure in the face of declining audiences, with the phenomenon most pronounced amongst the young. In the UK, the BBC’s budget looks under threat ahead of a licence fee review that will focus on its purpose in the digital age.

Faced with uncertainty about their business model, many broadcasters have diversified into production. There have been major investments in production by the likes of ITV, Sky and Discovery. ITV Studios’ UK production turnover now stands at £459m, putting it at the very front rank of UK ‘mega- indie’ groups.

This only looks set to continue, as the BBC prepares to ‘liberate’ its production division to compete with indies for commissions at rival broadcasters. “Consolidation in the form of broadcasters buying indies and the BBC’s intention to launch their studios project will reduce market opportunities,” argues Firecracker chief executive Sue Oriel.

The sense of competition has also been fanned by a swathe of production start-ups from well-known execs branching out on their own, such as Little Gem, Hungry Bear, Curve Media, Znak&Jones, New Pictures, Plimsoll and 7 Wonder.

HITTING A CEILING
However, UK commissioning spend has been broadly flat since 2012, according to Pact’s latest industry census, while international revenues dipped last year. Total industry revenues stood at £2.9bn in 2014, says Pact. This picture of an industry that has, for now, reached a ceiling is confirmed by indie responses to the question of how they see the outlook for their business in the coming year. The majority, 43%, say their fortunes will remain the same.

Against this background of flatlining spend and a growing number of production companies, it’s little wonder that one of the most commonly used words in the Production 100 in 2015 is ‘competitive’.

Asked to describe the business climate of the past year, Kudos’ head of finance Jamie Mayers says: “There’s been lots of opportunity but also massive competition.”

The business climate continues to be very competitive, adds North One general manager Andrew Simmonds – noting that indies have always had to fight for commissions.

Many smaller and medium sized indies admit the competitive nature of the industry is difficult to manage. “The past year has been tough,” says Outline md Laura Mansfield. “Broadcasters are increasingly risk averse, competition is fiercer than ever, and it’s getting harder to be a smaller fish swimming with sharks. We’re a mid sized company, with the overheads to service long running series, which means you are exposed when things go up and down.”

FALLING BUDGETS
In the UK, there are familiar complaints that budgets continue to fall or reduce in real terms. The consensus among Production 100 indies is that they are down 2.6% on average over the year.

CPL business manager Alexandra Kallis says one of the key challenges is “making a profit thanks to the ever tightening UK production margins.”

CREATIVE FUNDING
As a result, UK producers are increasingly having to pull in co- production partners to make up for budget shortfalls. Lining up co- production funding takes time, effort and money. “We seem to spend a vast amount of time trying to make up the shortfall in commissioner contributions with outside funding to get projects away, and very often taking the hit of the budget shortfall ourselves,” says Back2Back operations director Rebecca Notman-Watt.

Like many indie bosses, Boundless md Hannah Wyatt describes business as “very good”. But then comes a caveat: “Getting the commission is only half the battle. You need to be increasingly inventive in doing deals and to find creative funding models, especially around big ambitious ideas.”

The need to find co-pro finance used to be the preserve of drama and kids production, but is now commonplace in factual too. TJ Sherbrooke, head of development at Thumbs Up, says a key challenge is “finding deficit funding as broadcasters more frequently cannot fully fund.”

RIGHTS INCOME SQUEEZE
Meanwhile, Tern creative director Harry Bell is one of many who notes that rights income is being hit by the need to bring on board co-producers. “UK commissions via international co-pro or distributor advance is a huge new challenge. It also means the specialist factual space that the profits on secondary revenue sales have been swallowed up.” Tiger Aspect md Sophie Clarke-Jervoise adds: “With such large distribution advances needed to fund programmes, secondary income is declining.”

TALENT TROUBLES
Budgets are being put under further strain by the rising cost of on and off screen talent amid increased competition for top talent.“There are shortages of truly skilled people bringing upward pressure on pay that, in the face of downward pressure on tariffs, mean most productions run on very little margin these days, unless volume is commissioned,” says Firecracker chief exec Sue Oriel.

In certain genres, such as drama, the problem is particularly acute. Tiger Aspect’s Clarke-Jervoise says: “The general increase in high end scripted production is pushing up crew rates and creating a shortage of good crews.” There is a particular shortage of drama producers in the industry, adds House of Tomorrow managing director Annabel Jones. Trying to retain top talent while broadcasters delay commissioning decisions is also a major issue for many indies.

Many companies producing outside London say the push by broadcasters to commission in the nations and regions is welcome – but that there is a shortage of talent. “Finding and retaining key talent in Scotland,” is an issue for Firecrest creative director Nicole Kleeman.

RISING RENTS
Plenty of indies say that the rising cost of office space in London is creating financial headaches which compound budget shortfalls. “Office rents in our part of north London are going through the roof,” says Islington-based Hardcash md David Henshaw. “The rising cost of rent in London has hit us hard – broadcast budgets do not keep pace with the cost of space,and we’ve had to do some clever thinking to restructure our space in line with our needs and budgets,” says Outline md Laura Mansfield.

WINNING GENRES
Nevertheless, the UK is regarded by most indies as the market with most opportunities for them; the average indie generates 62.6% of its turnover from UK broadcaster commissions.

Factual, drama, sport and AFP/ branded content are viewed as the key growth genres according to many producers. “There continues to be a strong market for UK factual,” argues Shine TV head of commercial Kate Ward. “Broadcasters still want quality factual and current affairs content,” notes Brook Lapping head of production Andrew McKerlie. Discovery-owned Betty says that “the UK remains strong for us and specialist factual and adventure are the new growth genres.” Other indies say they are seeing growth in popular factual.

High barriers to entry mean sports indies are doing well. Sunset+Vine md John Leach says: “Sport output and demand continues to grow at the same time as broadcasters are producing less inhouse.”

Digital is a growth area for many indies, although revenues remain small. Digital revenues accounted for only 1.6% of the average indie. “The biggest growth area is in digital but because the licence fees tend to be much smaller the opportunity doesn’t add a lot to our turnover, as yet,” says Kindle’s Jacqueline McGee. There are opportunities in licencing content to on demand platforms, as well as producing for digital platforms. “Since the closure of BBC3 was announced, the iPlayer now seems like a real place of opportunity for new programmes,” explains Zeppotron’s director of operations Debra Blenkinsop. “We’re seeing growth in the digital space, in particular with our network of YouTube channels,” adds Remarkable director of production Susan King.

STRUGGLING GENRES
Greater investment into drama has had knock-on effects. It has not only made the genre more competitive, with a swathe of film producers and new entrants such as Studio Lambert pushing into non-fiction, but it has also hit genres like comedy and entertainment where spend is perceived to be falling.

Many say there is a distinct lack of entertainment slots at the BBC in particular. “It feels like fewer things are being commissioned generally in comedy entertainment across the board,” says Zeppotron’s Debra Blenkinsop. There are “considerably fewer opportunities in our genre,” notes Jon Rolph, md of comedy indie Retort.

Googlebox md Mat Steiner reports a “narrowing of entertainment opportunities.” The imminent closure of BBC3 is seen as a significant blow by many producers.

CREATIVE CONCERNS
More broadly, many indies flag up concerns about the creative ambition of UK television, arguing that there is a flight to the familiar at beleaguered broadcasters with many of the same old brands dominating the schedules for year after year.

Not only does this mean that British television is becoming less distinctive, it means there are fewer slots for indies to pitch into. Broadcasters are also being cautious in the amount of episodes they commission: “It’s tricky to get first runs of eight episodes – four episodes are increasingly being suggested,” says Maverick chief creative officer Mark Downie.

SLOW COMMISSIONING
Common to all genres, say indies, is a real problem with slow broadcaster commissioning. Complaints about the speed of commissioning have long been a feature of the Production 100, but this year they are much more noticeable. Delays in commissioning are cited as one of the key challenges for indies as varied as Maverick, Clear Story, CPL, Keo, Nutopia and Mentorn.

Many cite a round of changes in commissioning editors at key broadcasters this year, with plenty of upheaval at the BBC and C4 in particular. “Changes amongst all the broadcasters of key commissioners have proved difficult for development,” says Reef md Paul Hanrahan. The lead times from pitch to production can sometimes take 12-18 months, says Optomen’s Helen Manley.

DEVELOPMENT HELL
Development is taking far longer than it used to. “Being put into paid development used to mean a commission was on the horizon, not any longer,” notes Firecracker’s Sue Oriel. Converting paid development into programming and series is cited as a key challenge by Boomerang md Gareth Rees.

Many producers cite problems with cash flow as result of waiting for decisions. “The speed of commissions coupled with increased costs in R&D has led to strains on cash flow,” admits Keo Films financial controller Christopher Day. “Nobody can make a decision which affects cashflow,” adds Back to Back operations director Rebecca Notman-Watt.

GLOBAL OPPORTUNITIES
The international market is still viewed as a major opportunity for indies. Global expansion has been the big story of the past five years, particularly in the US. International production revenues now account for an average of 18.5% of indie turnovers, up slightly from last year’s 18%.

For some indies, the figure is far higher. Internationally focused outfits like Windfall, Nutopia, Wag, Left Bank, Sixteen South, Pacific and Arrow earn at least 70% of their revenues from international broadcasters. The majority of indies say international production is the area they are seeing most growth in.

However, many report that the US market has slowed. Pay-TV operators in the US have been under pressure for the past year as ratings have fallen sharply, a phenomenon blamed on “cord-cutting” and cheaper digital options such as Netflix.

“The US market has been very tricky except for established programme brands because of the downward trend in real time viewing. We have heard from numerous contacts that ‘it’s all over’ for cable/satellite channels with huge downward pressure on budgets becoming obvious in pitching sessions/deal memos coming through,” says Firecracker’s Sue Oriel. This is a point confirmed by other indies who say the US has ‘withered’ and is ‘less buoyant’. That said the US remains a substantial opportunity for those who are able to crack the world’s biggest TV market. See Televisual's Reports and Section for the full Production 100 survey

Meanwhile, Twofour was voted the most admired indie by its fellow producers in the Production 100 Peer Poll, followed by The Garden and Love Productions.

The combined turnover of the top 100 production companies stands at £1.77bn this year, down from last year’s £1.93bn and 2013’s £2.1bn.

This points to a downturn in the sector, although strict year on year comparisons are difficult to make as a small number of indies chose not to take part in the Production 100 each year.

In their absence we conclude that the fortunes of the sector have plateaued this year. A number of larger producers – such as Avalon, Tiger Aspect and Hat Trick – have had a very good year, with turnover significantly up.

A handful of drama outfits – Left Bank, Neal Street and Red – have also seen turnover shoot up on the back of big budget commissions.

But many of the larger production companies have seen turnover dip, amid signs that growth is becoming harder to achieve in today’s market. Seven out of last year’s top ten have posted turnover falls.

Some of the slack has been picked up by smaller, independent outfits like Arrow, Wild Pictures, Burning Bright, Eleven Film, Minnow Films and Knickerbockerglory.

The top 100 are ranked according to the turnover of their UK operations.
See Televisual’s September issue for the full Production 100 survey.

(The cover image for the Production 100 was designed by Matt Lawrence, head of design at Envy.)

It’s worth having a look at this film starring Harry Enfield, which highlights the issue of diversity in television and is made for Creative Skillset.

The film was premiered at the Edinburgh TV Festival at a diversity networking drinks attended by TV execs and the Minister of State for Culture and the Digital Economy Ed Vaizey.

Harry stars as Haanes, a South African émigré who arrived in the UK in the late 1980s and then found work in television in this country. To say the very least, he has a rather backward and outdated view of the world – based around an era that we all thought had passed.

Nevertheless Haanes sees many things that he recognises in the Television industry in 2015…